Archive for July 12th, 2011

On Saturday afternoon, Derek Jeter took a few hours off from bedding supermodels to launch career hit #3,000 into the 7th level of hell left field seats at Yankee Stadium, reaching a milestone that cemented the shortstop’s place among the best to ever don pinstripes. Given the magnitude of Jeter’s accomplishment, few could have imagined that much of the subsequent attention would focus on the man on the receiving end of the historic homer.

Jeter’s shot was eventually corralled by 23-year old cell phone salesman Christian Lopez, who both literally and figuratively had a winning lottery ticket fall into his lap. Lopez was certainly entitled to take his ball and go home, as so many before him have done, to capitalize on capitalism and sell his slice of history to the highest bidder. People in the know have pegged the value of the ball at $250,000, a life-changing sum for a recent college graduate like Lopez.

Instead, Lopez graciously returned the ball to Jeter, asking for nothing in return; a laudable act that both warms my heart and challenges my life-long contention that all Yankee fans are inherently evil. The team’s brass was equally impressed, and they made certain that Lopez didn’t leave the staidum empty handed:

… Lopez will receive four tickets to a suite for every remaining game at Yankee Stadium this season (including any possible playoff games) plus first row Legends Suite tickets to Sunday’s game. He also received an assortment of bats and jerseys signed by Jeter…

All of this leads to one compelling question: Will the IRS seek to tax Lopez on the value of his parting gifts?

The Internal Revenue Code makes a habit out of taxing accretions to wealth, and I’m guessing the value of those tickets — four each for the remining 33 regular season home games and several more for the inevitable playoff run –is well in excess of $50,000, certainly qualifying as an accession to Lopez’ wealth.

There are three ways the IRS could approach this situation, only one of which won’t assure the Service’s continued position as America’s most reviled government agency for the next 20 years:

1. The IRS could treat Lopez as having received compensation equal to the fair market value of the free tickets and autographed gear and immediately assess tax. The IRS certainly has the ammunition to do so under either Treas. Reg. 1.61-1, which states, “Gross income includes income realized in any form, whether in money, property, or services” or the “treasure trove” regulations of Treas. Reg. 1.61-14, which provides “Treasure trove, to the extent of its value in United States currency, constitutes gross income for the taxable year in which it is reduced to undisputed possession.”

Unlike the challenges the IRS faces in assigning a value to a found ball, it would not prove difficult for the Service to determine the value on the tickets awarded to Lopez, making immediate taxation much more likely. Despite the public outcry that will likely ensue, this appears to be the most likely result.

2. When Mark McGwire hit his historic 62nd home run in 1998, an IRS agent went on record as saying that if a fan caught the ball and simply handed it back to McGwire, the fan would be treated as having made a gift equal to the value of the ball, incurring a hefty gift tax. The IRS could revisit this approach in this case, asserting that Lopez made a gift of $250,000 to Jeter.

3. Lastly, the IRS could allow a good deed to go unpunished, ignoring the treasure trove regulations and allowing the value of the ball, tickets and memorabilia to go untaxed unless Lopez should sell the tickets or gear at some point in the future. As dicussed above, because of the relatively certain value of the tickets received, unfortunately for Lopez, this would seem to be a very unlikely result.

The items in this blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. A select group of Tax Professionals of WithumSmith+Brown write Double Taxation, and any opinions expressed or implied are not necessarily shared by anyone else at WithumSmith+Brown.

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